Where is The Inflation??

Financial FAQs

The answer, in a nutshell, is it’s nowhere to be found. All current worldwide and domestic inflation indicators show depressed demand for goods and services, hence there is little incentive to raise prices. Therefore businesses are spending little on expanding capacity—with the exception of housing and autos. For instance, Ford just announced it will be hiring 5,000 additional workers and introducing 16 new models, while GM will spend $1.3 billion to expand 5 existing factories.


Graph: Calculated Risk

In fact, the Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in November on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased just 1.2 percent before seasonal adjustment.

Why such a weakness in demand? It’s because consumer incomes are barely rising, and consumers account for some 70 percent of economic activity. The income side of the October report is especially soft, at minus 0.1 percent following two very strong months at plus 0.5 percent, said the Commerce Department. The decline is the first since January and may be related to the impact of the government shutdown on private wages. Wages & salaries are especially soft, up only 0.1 percent following gains of 0.4 and 0.6 percent in the two prior months, as the Econoday graphs shows.


Graph: Econoday

So is it any wonder that consumers are spending less, with the Federal Reserve keeping interest rates at record lows? Spending has been increasing just 2 percent annually. Housing in particular has been boosted by those low rates, with conforming 30-year fixed mortgage rates still at 4.375 percent for zero origination points.

And housing starts are at 5-year high. Construction surged in November-and this time it was not just the multifamily component. Starts in November jumped 22.7 percent after rising 1.8 percent in October. The November starts annualized level of 1.091 million units topped expectations for 0.952 million units and was up 29.6 percent on a year-ago basis. September starts were 0.873 million and October was 0.889 million.

Low interest rates go with low inflation rates, which in turn are due to barely rising wages and salaries. Only a lower unemployment rate will boost consumers’ incomes, and that means a commitment by both political parties and the White House to policies that encourage greater growth.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
This entry was posted in Consumers, Economy, Housing, housing market, Politics, Weekly Financial News and tagged , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s